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No immediate intervention on pension firms, says minister

couple on cliff top Image copyright Thinkstock
Image caption Not everyone has been able to access their pension pot as they were promised

The government will not intervene immediately to force pension providers to deliver on promised freedoms, the pensions minister has told the BBC.

It follows news that some providers will not allow the over-55s to withdraw money from their pension pots as they wish.

Other companies are charging hundreds of pounds for advice.

But Ros Altmann, the pensions minister, said the reforms - which started in April - must be given a chance to work.

"If things aren't working properly, we will take action," she told BBC Radio 5 Live.

"But let's give these reforms a chance; let's see how they work; the idea is right."

The pensions industry said that the changes had been brought in too quickly, with the legislation completed just 20 days before the reforms were due to begin.

In the first month of operation the Association of British Insurers said providers had received more than a million calls about the changes, 80% more than expected.

Flexibility

Under the government changes, anyone over the age of 55 now has the ability to withdraw as much money as they like from their pension savings, subject to income tax.

But some companies are refusing to offer the full range of freedoms.

Friends Life, for example, has written to 1300 customers, telling them they can either buy an annuity, or withdraw all their savings at once.

But savers are not allowed to draw down a pension, or take out smaller amounts - something which would enable pensions pots to be used like bank accounts.

The company told the BBC it was planning to offer partial withdrawals "in due course", but could not say when.

It is not compulsory for providers to offer the full range of flexibilities.

The regulator, the Financial Conduct Authority (FCA) said it would be monitoring providers, to see how the changes were being brought in.

"The majority of people have been able to take advantage of the new rules without any problem, but we are talking to those firms where issues have arisen as the reforms bed in," said an FCA spokesperson.

"It is in everyone's interest to ensure that consumers can utilise the new options available to them with confidence."


Pension changes 2015

Image copyright Thinkstock
  • People aged 55 and over can withdraw any amount from a Defined Contribution (DC) scheme, subject to income tax
  • Tax changes make it easier to pass pension savings on to descendants
  • Many people with Defined Benefits (DB) schemes will be allowed to transfer to DC plans
  • All retirees will have access to free guidance from the government's Pension Wise service
  • Existing annuity holders are unaffected for the time being, but there are plans for them to be able to sell their annuity

Charge caps

Lord McFall, a former chairman of the Treasury Select Committee, said the government ought to intervene.

He said charges for customer advice could be excessive.

"You can find that a third of the pension pot can be taken away in pension charges," he told the BBC.

However pension providers are obliged to give consumers advice in certain circumstances - particularly with older-style defined contribution schemes, and defined benefit schemes where the pot is worth more than £30,000.

Providing such advice can be time-consuming, so providers say they have to charge appropriately.

Ros Altmann said the government might consider capping charges, if there is evidence they are too high.

"We have powers in the legislation to impose caps on charges, and if necessary to force companies to behave much better."

But the industry said it should have been given more time to get ready for the changes.

"With so little time to prepare it was always clear that, despite everyone's very best efforts, there would be a significant gap between the government's ambition for these reforms on day one and the practical reality," said Joanne Segars, the chief executive of the National Association of Pension Funds.